Proposed Accounting Rule Changes put SPACs in the Crosshairs


The SPAC market has been booming, to say the least.

However, this boom may have just ended based on an important accounting rule change proposal from the SEC.


A special purpose acquisition company (SPAC) is defined as “a company with no commercial operations that is formed strictly to raise capital through an initial public offering (IPO) for the purpose of acquiring an existing company.” These “blank check companies” have become quite popular in the past year, with the majority of activity occurring between January and March of this year.

According to CNBC and SPAC Research, the number of SPAC IPOs that occurred from January to March is 292, totaling nearly $88 billion. This breaks last year’s record of $83.4 billion, and shatters records from prior years: the total amount of capital raised through SPACs was $10 billion in 2017, $10.8 billion in 2018, and $13.7 billion in 2019.

Accounting Rules

After a recent statement from the Securities and Exchange Commission, there are major concerns about the future of SPACs and the viability of this type of deal.

Last week, the SEC published a statement issuing guidance on SPACs and accounting practices. The Commission has issued previous concerns about SPACs in the past, but this statement is different.

In its statement, the SEC proposed that SPAC warrants be classified as liabilities rather than equity investments. Additionally, these warrants must be recalculated in prior 10-Ks and 10-Qs, a task that will cost companies a tremendous amount of time and money to complete.


Warrants are important to SPACs because they attract investors to put money into these deals. SPACs are vague in that they do not provide investors with specifics on a particular deal. In fact, there is often little to no information on a particular deal, hence the nickname “blank check company” that SPACs often bear.

Warrants allow investors to purchase additional stock in the future at a specified price. This is attractive for investors because the value of the stock could be much higher in the future, allowing an investor to purchase shares at a price that is lower than the market price.

Current Status of SPACs

While the recent SEC statement is not immediately effective as law, investors and institutions are concerned that it will become law. This has already been shown to be a serious concern based on the recent slowdown of SPAC activity. According to Anthony DeCandido, partner at accounting firm RSM LLP, “SPAC transactions have essentially come to a halt.” SPAC IPOs plunged dramatically this month, from 109 in March to just 10 this month.

The future of SPACs will be in focus as investors, accounting firms, and financial institutions ask themselves how to resolve these issues. As of now, the market is essentially “shut down,” according to many professionals within the financial services industry. We will continue to monitor this situation and provide updates on potential legislation.